Inflation remains well ahead of the Bank of England target

The Office for National Statistics has confirmed that inflation, as measured by the Consumer Prices Index grew by 2.8% in the year to July 2013, down slightly from 2.9% in June but still well ahead of the Bank of England target rate.

The public should take note before rushing out to buy yet more residential property assets on historically high multiples of average earnings: despite last week’s forward guidance by the Bank of England signalling that ultra-low interest rate could be here to stay for years yet, there are caveats allowing the Bank to change course. A key one being forecast inflation for the next 12/18 months being 0.5% ahead or more of the Bank’s official 2% target.

As for savers, they have been hit with four and a half years of record low interest rates, with rates on Cash ISAs and savings accounts squeezed by the Funding for Lending scheme. Yet despite real returns being negative on cash accounts, 80% of the 14.6 million ISA accounts subscribed to last year were invested in cash. Cash simply isn’t king in the current environment of low rates and above target inflation.

While we all need some cash reserves for short term needs and emergencies, we believe that investors with a reasonable time horizon should look to shift some of this into riskier assets where there is a prospect of a real return after inflation.

The value of investments, and the income derived from them, can go down as well as up and you can get back less than you originally invested. Prevailing tax rates and reliefs are dependent on your individual circumstances and are subject to change. This article is not a personal recommendation, or advice to invest.

The value of your investment can go down as well as up, and you can get back less than you originally invested.

Past performance or any yields quoted should not be considered reliable indicators of future returns. Restricted advice can be provided as part of other services offered by Bestinvest, upon request and on a fee basis. Before investing in funds please check the specific risk factors on the key features document or refer to our risk warning notice as some funds can be high risk or complex; they may also have risks relating to the geographical area, industry sector and/or underlying assets in which they invest. Prevailing tax rates and relief are dependent on your individual circumstances and are subject to change.